Retirement changes a lot, but it doesn’t change the fact that we still have bills to pay and those bills can be overwhelming at times. There is one type of debt in particular that is wreaking financial havoc on people, which is unfortunately common among retirees. But it shouldn’t weigh you down.
Making paying off debt your top priority now can help your finances today and in the future and improve your odds of retiring comfortably.
It starts small, but it rarely lasts that way
More than three-quarters of retirees have some type of debt, according to a recent survey by Clever Real Estate. It’s no surprise that you’ll find auto payments and mortgages among the most common types, but there is one type of debt that is more prevalent.
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About 67% of debit respondents said they currently carry a balance on their credit cards, and many also said they struggle to keep up with their credit card payments. It is clear that defaulting on any debt is not ideal, but credit cards are high Annual Percentage Rates (APRs) – Exceeding 20% in some cases – Can create long-term financial problems.
If you fail to pay your balance in full at the end of the month, the credit card company charges interest, and this quickly inflates your balance. Next month, you’ll have more to pay off, and if you can’t, you’ll get more attention.
It’s a big problem for seniors who live on a fixed income because they may have to drain what little savings they have to keep up with their credit card bills. And if they don’t have enough savings to pay what they owe, they may need to go back to work or rely on family members to avoid late fees or legal action.
Even if you’re still working, credit card debt can increase the risk of financial instability in retirement because it can prevent you from being able to do so. except for retirement in the first place. Even if you try to save for the future and pay off your credit card debt simultaneously, you will likely end up losing money because you will be paying more interest than you earn on your investment.
How to prevent credit card debt from ruining your retirement
If you have debt on a credit card, paying it off should be your top priority. When you have extra cash, it’s very simple. You can either pay a lump sum or put your surplus cash into paying off your debts each month until it is paid off. But the problem is that most people don’t have the extra cash, or they wouldn’t have credit card debt in the first place.
Some people choose to open a new credit card – A Balance Transfer Card. These cards offer an introductory APR of 0% to new customers for a few months before the standard annual percentage rate (APR) begins. During the 0% annual percentage period, your balance will not grow at all, as long as you do not incur a late payment fee. So any payments you make go toward reducing your primary balance.
Of course, to do this, you still need extra cash every month. If you don’t have much to save now, you may have to consider working extra hours or taking a side job in order to get the money you need to pay off your debts.
You can also trade your credit card debt for a personal loan. To do this, you have to take out a personal loan for the amount of your credit card debt and use the money to pay those bills. Then you will have a predictable monthly payment that you can pay off without fear of a ballooning balance. However, you will still pay interest on what you owe a personal loan, and it can be difficult for retirees to obtain a personal loan without form of income.
Whenever possible, it’s best to take care of your credit card debt before you retire, but if you’re already retired, that doesn’t mean you’re doomed. You should definitely make paying down debt a top priority, and you may need to come out of retirement, at least part-time, until your finances are in control again.
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